Above-the-line deductions offer tax breaks without itemizing
Saturday, April 11, 2015
I know I just extolled the virtues of tax credits over tax deductions. But you don't have to pick one or the other. Claim all the credits and deductions you can.
When deductions are mentioned, most folks think itemized deductions. That's mainly because they have their own special form, Schedule A.
But most taxpayers don't itemize. So they're out of deduction luck, right? Wrong.
Deductions above and beyond: There's a collection of tax breaks known as above-the-line deductions.
Technically, they are adjustments to income. You subtract them from your gross income, which is all the money you made in the year from whatever sources, to get to your adjusted gross income (AGI), which is the basis for a lot of tax situations.
Most of the adjustments are found in the last section of the first page of Form 1040.
They range from $250 to help school teachers and other educators cover out-of-pocket classroom expenses to $4,000 in college tuition and fees to the amount of your deductible IRA contribution to whatever it cost to get from your old home to your new place so you could take that new job.
Added adjustments: And while 13 above-the-line deductions (which collectively count as this week's By the Numbers figure) are listed on the 1040, there actually are more claims you can make.
The Form 1040 instructions say that on line 36 you can include a variety of other claims. You enter the amount(s) and then write on the line an abbreviation of the claim(s).
The additional adjustments to income include:
- Archer Medical Savings Account deduction -- See Form 8853 for details and identify as "MSA"
- Jury duty pay -- Identify as "Jury Pay
- Rental of personal property engaged in for profit -- Identify as "PPR"
- Reforestation amortization and expenses -- See IRS Publication 535 and identify as "RFST"
- Repayment of supplemental unemployment benefits under the Trade Act of 1974 -- See IRS Publication 525 and identify as Sub-Pay "TRA"
- Contributions to section 501(c)(18)(D) pension plans -- See IRS Publication 525 and identify as "501(c)(18)(D)"
- Contributions by certain chaplains to section 403(b) plans -- See IRS Publication 517 and identify as "403(b)"
- Attorney fees and court costs for actions involving certain unlawful discrimination claims -- See IRS Publication 525 and identify as "UDC" and
- Attorney fees and court costs you paid in connection with an IRS award for information you provided on tax law violations -- Identify as "WBF"
As you can see from the brief descriptions, these added adjustments are very specific. Still, they apply to some taxpayers. If you're among them, be sure to take your above-the-line deduction.
1040A, too: While 1040 filers get the bulk of above-the-line deductions, four of the more popular write-offs -- educator expenses, IRA deduction, student loan interest and tuition and fees -- also are on the slightly shorter 1040A return.
As with the long form, they appear in the last section of the first page of Form 1040A.
Deductions for all: On both returns, the adjustments are just above the line where your AGI is entered, hence the name above-the-line deductions.
One of the great appeals of the above-the-line deductions is that they are right on the 1040 and 1040A tax returns. Sure, some of them require you to fill out a worksheet or another form, and you still need to keep track of expenses to claim some of these income adjustments.
But you don't have mess with Schedule A and its thresholds, such as 10 percent of AGI for deductible medical expenses or 2 percent of AGI for job-related and other miscellaneous claims.
Plus, you get to claim all the above-the-line deductions for which you qualify and still take the standard deduction.
And if you do itemize, these are icing on the write-off cake. You can fill out your Schedule A and take whatever above-the-line deductions that apply to you, too.
Weekly tax tip roundup: This past week, the Daily Tax Tips started with a closer look at the deductions that are available to all taxpayers, itemizers or not.
That was followed by specific tips on several above-the-line income adjustments, most of them education-related.
Then we detoured over to the Schedule A to look at a couple of mortgage-related itemized deductions, before wrapping it up with everybody's favorite tax topic, audits.
If that sounds like a lot of tax advice for a five-day work week, remember that to ensure we cover as much as possible before the approaching filing deadline day, we doubled up tax tips last Tuesday, Wednesday and Thursday.
Here are the mostly deduction-related Daily Tax Tips that were posted from April 6 through April 10:
- Tax deductions without itemizing (Monday, April 6, 2015)
- A tax break to cover tuition and fees (Tuesday, April 7, 2015)
- Writing off moving expenses (Tuesday, April 7, 2015)
- Student loan interest deduction (Wednesday, April 8, 2015)
- Educators out-of-pocket classroom expenses (Wednesday, April 8, 2015)
- Mortgage points could be tax deductible (Thursday, April 9, 2015)
- Some PMI payments are tax deductible (Thursday, April 9, 2015)
- Don't fly these tax audit red flags (Friday, April 10, 2015)
You can find the Daily Tax Tip each week day in the upper right corner of the ol' blog's home page through April 15. After Tax Day, the tip posting schedule will go to once a week.
And if you need more tax info as your finish up your 2014 return or postpone your filing until Oct. 15 (just submit Form 4868 and any tax you might owe), check out the monthly tax tips collections at their special blog pages: January, February, March and April.
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